Property Tax Reform: Constitutional Amendment or Not?

The 2008 Legislature took a first step toward putting a permanent property tax cap into the Indiana Constitution. Depending on what happens Nov. 4, the fate of that cap could be very much in jeopardy.

Only one of the three candidates for governor supports an amendment limiting residential property taxes to 1 percent of a home’s assessed value. Incumbent Republican Mitch Daniels, who pushed for the proposal during the last legislative session, will make it a priority of the next session, his senior policy adviser said last week.

Democrat Jill Long Thompson and Libertarian Andrew Horning oppose the cap but for different reasons.

Said Thompson: “While I fully support efforts to put fairness back into our tax structure and decrease the property tax burden on homeowners and businesses, I do not support placing caps into the Constitution at this time. Altering our Constitution should be done very cautiously and I think we need more time to judge the success of the caps. We may find, in the future, there are improved ways to ease the burden of taxes.”

In other words, before committing to a constitutional amendment, Thompson wants to see how a statutory 1 percent cap passed by the last legislature and scheduled to take effect in 2010 works out. The problem with this approach is that there’s no guarantee the cap will ever kick in.

Local governments are already bemoaning potential loss of revenues and lobbying the Statehouse to rescind the cap. With an election year behind them, lawmakers could easily forget the grass-roots protests of 2007 and succumb to the tax-and-spend constituencies spreading horror stories about cuts in services they claim they will have to make. Furthermore, the legislation setting the cap creates a loophole for “distressed” units of government to petition for relief from the cap. For Hoosier taxpayers, the only guarantee is a constitutional amendment.

Horning’s opposition is based on a general distrust of constitutional amendments. “The problem is that politicians violate their oaths to the constitution to such a degree that this amendment amounts to no more than a red herring. Why amend what they flout?”

In this particular case, an amendment would force lawmakers to stop flouting what the Constitution already guarantees: “a uniform and equal rate of property assessment and taxation.” As Hoosiers are fully aware, our property assessment system has been the source of controversy and litigation for decades because it’s chronically un-uniform and unequal. Stories are legion of identical houses in comparable neighborhoods with widely different valuations and tax levels. The pending constitutional amendment would change that. If you owned a $100,000 house, regardless of whether you lived in Evansville or Gary, inner-city Indianapolis or Carmel, the most you could be charged in property taxes would be $1,000 a year. That’s uniform and equal.

For Senate Joint Resolution 1 to take effect, two things must happen. The next legislature has to approve language identical to what it adopted during the 2008 session. “A taxpayer’s property tax liability . . . may not exceed 1 percent of the gross assessed value of the property that is the basis for the determination of property taxes.” For agricultural property, the cap is 2 percent and for business property it is 3 percent.

Next, the voters have to approve the amendment in a referendum that would be held in November 2010. If the legislature were to change the wording even slightly next year, the whole amendment process would have to start over again.

That would be a huge mistake, said Aaron Smith, one of Indiana’s most vigorous citizen watchdogs who has posted candidates’ stands on this issues at the following web address: www.finplaneducation.net/2008_general_elections.htm

“From the standpoint of state and local tax burden for Hoosier working families, the General Assembly’s vote in 2009 on SJR 1 will be the most important vote this generation,” Smith said.Andrea Neal is a teacher at St. Richard’s School in Indianapolis and adjunct scholar with the Indiana Policy Review Foundation. Nothing written here is to be construed as reflecting the views of the Indiana Policy Review Foundation or as an attempt to aid or hinder the passage of any bill before the legislature or to further any political campaign.

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